One-Offs vs the Bigger Wheat Picture
Wheat prices on the futures board all lost ground last week as southern hemisphere production concerns and record cold weather in the U.S. Southern Plains were overcome by outside pressure from corn markets and a general reminder that there’s still a lot of wheat in the world. For example, an Argentine wheat harvest of 18.5 MMT, would still be a very large haul for the South American country. Even after shipping their usual amount of wheat to Brazil, there’s likely still at least 7 MMT of winter wheat quality that could be shipped. Comparably, Australia is likely to be able to ship out about 7 MMT as well, but also mostly low-protein wheat that will go into Asian markets.
Strong American wheat export activity continue to support cash markets in the U.S. though. Through Week 23 of its crop year, nearly 400,000 MT of durum and 3 MMT of hard red spring wheat have been shipped out of American ports, good for a 61% and 13% improvement, respectively, compared to the same week a year ago. As a reminder, two Fridays ago in the November WASDE, the USDA lowered U.S. hard red spring wheat production by 1 MMT to 14.2 MMT (down 11% from 2018/19) and durum output by 110,000 MT to 1.47 MMT (31% below 2018/19).
Across the border, through week 14 of the 2019/20 crop year, Canadian durum shipments are performing well with 1.3 MMT sailed, good for a 57% improvement year-over-year. That said, durum prices across the Canadian Prairies having been trading sideways for the past few weeks and so there’s a bit of a concern that slow purchasing for winter deliveries will push the price trend lower before Christmas. That said, if you haven’t contracted anything yet, selling a little bit now isn’t a bad idea. While this is where the “well it could go up” internal debate tends to start, but, remember, if the price goes up down the road, you’ve still got more in the bin to sell.
Conversely, non-durum wheat exports are tracking nearly 10% behind last year, with just 4.57 MMT sailed so far. This is likely a function of competitive markets internationally, and weaker domestic prices. Average cash HRS wheat prices for spot movement in Western Canada moved below $6 CAD/bushel last week and are now tracking 13.5% behind where we were at this time a year ago. Comparably, average CPS wheat prices (11.5% protein) in Western Canada is also down about 12.5%, with an average cash price of $5.14 CAD/bushel for spot movement.
For many Western Canadian wheat farmers, falling numbers continue to be heavily scrutinized by major companies, with reports that anything closer to 300 seconds is not meeting contract specs and being rejected. This is obviously a major point of contention with producers as falling number is not an official grading requirement from the Canadian Grain Commission.
That said, this reinforces my #2 rule of grain marketing: know your grain’s quality. Go out and get it independently tested. If you’re balking at the cost of getting your grain tested by an unbiased player, then factor that test cost into your aggregate cost of production, and you’ll realize it’s likely about 50¢ - $1.50 per acre. This is not that heavy of a one-off financial burden, when, in the grand scheme of things, you’re potentially leaving $1,000s on the table not knowing what you have.
President & CEO | FarmLead.com